First-home buyers pile in as government support reshapes the market

First-home buyers are seizing the market by storm, taking advantage of low barriers of entry to jump into the property market.

Hot inflation in the December quarter lead to mixed forecasts for interest rates and the property market at the end of 2025, concerns which did not deter demanding buyers from making moves before the Reserve Bank hiked the cash rate for the first time in more than two years in February.

New data from the Australian Bureau of Statistics shows lending activity ramping up across all borrower-types between October and December, led by strong first-home buyer activity.

The overall number of new loans was 5.1% higher over the quarter, slightly slower than the 5.7% increase between July and September. The total value of new loans was also slightly lower, at 9.5% over the quarter down from a rise of 10.9%.

Policy changes to support first-home buyers drove lending activity in the lead up to Christmas according to ABS head of finance statistics, Mish Tan.

"There was strong growth across all borrower-types this quarter. The number of first-home buyer loans rose 6.8%, investor loan numbers rose 5.5% and the number of owner-occupier non-first-home buyer loans rose 3.6%," she said.

"This was the largest rise in the number of first-home buyer loans since the December quarter 2023, and their value increased by 15.5%."

A total of 31,780 loans were issued to first-home buyers in the quarter.

HIA senior economist Tom Devitt labelled the lending data findings “a positive development”, adding first-home buyers had grappled with structural disadvantages for too long.

“Over a decade of post-Global Financial Crisis lending restrictions have been aimed at creating an ‘unquestionably strong’ financial sector but have also increasingly squeezed out first-home buyers from the market,” he said.

“A strong financial sector is key to a well-functioning Australian economy but a regulatory environment that is so restrictive that banks are prevented from taking on fair commercial risks associated with mortgage lending to average households, is not a well-functioning environment.”

Since 1 October, the government has guaranteed a portion of a first-home buyer loans, allowing new buyers to enter with a 5% deposit while also avoiding Lenders’ Mortgage Insurance (LMI).

With national home prices 8.4% higher than a year ago, the 5% deposit scheme – part of the expanded Home Guarantee Scheme – has the advantage of price caps which aim to reflect more realistic price points.

For first-home buyers in the country’s priciest cities, it’s a welcome opportunity to snag a home in their desired area.

Home loans submissions data from Mortgage Choice found 28% of prospective first-time buyers were prompted to buy sooner when the scheme launched.  

“The national average loan size is up almost $70,000 year-on-year which shows just how much and how fast the goalposts have moved for the average buyer,” chief executive Anthony Waldon said.

“For most first-home buyers, these shifting goal posts mean the Home Guarantee Scheme may be the helping hand they need to fast-track their entry into the market.

“Seeing the average loan size rise by over $80,000 in markets that have been historically more accessible, like South Australia and the Northern Territory shows just how challenging the market has become for first-home buyers.”

The scheme has faced several critiques, including that the generous caps risk inflating property prices and exposing buyers and the public to financial risk as markets change.

Around one in 10 properties sold in October was purchased by first-home buyers using the 5% Deposit Scheme, while Treasury papers from December showed more than 21,000 first home buyers have used the scheme since it was launched.

The lending data also reflects the first quarter encapsulating the take up of the Help to Buy shared equity scheme.

First-home buyers using Help to Buy can save thousands on LMI. Picture: Getty

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Low-to-middle income earners have also had the option to purchase a first home with a deposit as small as 2% since 5 December on the scheme, which also removes the need for lenders mortgage insurance.

Over the next four years, Help to Buy is expected to allow a total 40,000 Australians to purchase either new or existing home with an equity contribution from the government with minimal up-front financial commitment.

While it is limited to buyers earning less than $100,000 or less ($160,000 for a couple), property price caps are generous and largely in line with median prices in each state.

Homes continued to be in hot contention across the country over the final quarter of 2025, with the national home price up 0.6% in October, 0.5% in November and 0.1% in December.

The PropTrack Home Price Index shows the median home value hit a record $880,000 at the end of last year, up 8.8% or $82,200 in 12 months.

Modest gains in January have since pushed prices 0.2% higher again, despite seasonal lighter sales volumes.

Price growth in 2025 was supported by three rate cuts and is expected to soften in 2026, keeping buyers on their toes with potential higher interest rates likely to dampen borrowing capacity.

With the abundance of schemes softening that blow, first-home buyer momentum is expected to continue.

This article first appeared on Mortgage Choice and has been republished with permission.